Tuesday, September 21, 2010

To Discount, or NOT To Discount ?...

...that IS the ?...by David Bookout

THAT IS THE QUESTION !...

Discounting seems to be a popular concept in today's economic times, and a topic that a number of clients are working with as they navigate their respective markets. So, I thought I would share a few public thoughts relative to discounting and the pricing strategies behind them:

First, discounting is an announcement that the provider has lost faith in the originally advertised ( I use the A word loosely ) price. They are saying, in effect... hey, we didn't think that you; Mr., Mrs., or Ms. customer "really" believed the value proposition we ( or, the manufacturer ) offered, so here's what we are going to do...

But, is this really what they're saying ? It could be argued that they are REALLY now saying "Ah, I've got you where I want you...doubting the value of your own product / service, AND I'm going to wait to see how desperate you're going to get before I take advantage of you."

So, let's talk strategy.

Let's consider that discounting is a slippery slope, and once mounted, a difficult slope to gain traction on, let alone allow the climb to the heights of healthy, business building profitability.

From here we need to establish perceptual value and answer the question of exactly what pain the product, or service takes care of. The lower the pain ( read "concern" ) the lower the willingness to part with valuable cash. Especially when there is a question of where the replenishment cash is going to come from. Particularly true today.

So, strategically, and economically, we need to keep value high and remember that "recession" is where people don't have enough money, and "deflation" is where people wait until tomorrow to buy what they were going to buy today because it's probably going to be cheaper ~ upps, I meant to say "less expensive", tomorrow.

So, how do we keep value high ?

First and foremost by not folding to our own fear that what we're offering isn't valuable. The "market" ( a group of people ) ultimately decides what's valuable. BUT, the important thing to remember is that it takes actual declines ( no, thank you, not today ) that determines a price point. Effective price points don't get set arbitrarily, it's a two sided process, a two sided "conversation".

Second, if WE don't value the offers we're making who else is going to ? We alone know the "cost" that went into, or goes into making the offer we make. Discounting allows someone else to make this assessment. Just try and discount your cable bill, your phone bill, or the price you're going to pay for a dinner out this evening. Who do you encounter should you be so bold as to go here ? There's a difference between an employe who is unable to make a discounting decision and an owner who is willing to make a discounting decision.

Be an owner !

Choice ~ Actually, and I'm not advocating this as a strategy for everyone, but, some studies show that by removing price, and allowing the customer to pay "what they want" that the customer actually pays MORE for the product, or service provided !!!...

Some may argue that this is discounting to the max, but is it really ! ?

The effect is merely transferring the value decision to the consumer, a MUCH different strategy than discounting. Don't you think ?

In closing, here are five actionable steps:

1) Think about the brand identity that you want in the market place, and particularly the fact that the brand identity that you want may not be the brand identity that you're generating from the actions you and the rest of your company are taking. Brand consistency needs to be across ALL touch-points with your desired audience.

2) Think about the long term effects of any discounting strategy you're considering...

3) Spend just a little more time discovering the "true" value that your clients perceive in your product, or service offer...

4) Hold firm. Each transaction is a "conversation", even in today's world where you might not even get a chance to actually "talk" to a prospective customer. AND, most importantly, remember how you feel when you really want something ~ do you forget about it ? ~ no, you just keep going back until one of two things happen: (a) your situation changes such that you can "afford" to get what you want, or (b) the person selling reduces the price and brings what you can afford to a lower level.

5) Remember that it ( actually everything ) is a numbers game. So, if your only talking to a few people to base your product / service pricing decision, talk to more. There is a BIG difference between qualitative and quantitative study, particularly on price points.